Template revised January 10, 2019.
COMMISSION
AGENDA MEMORANDUM
Item No.
8g
ACTION ITEM
Date of Meeting
May 10, 2022
DATE : March 25, 2022
TO: Stephen P. Metruck, Executive Director
FROM: Susie Archuleta, Real Estate Manager
SUBJECT: New 5-Year Lease with Arctic Storm Management Group LLC at Pier 69
Amount of this request:
$216,894
Total estimated project cost:
$216,894
ACTION REQUESTED
Request Commission authorization for the Executive Director to execute a Lease with Arctic
Storm Management Group LLC (ASMG) at Pier 69 that provides a 5-year original term and one
5-year option to extend. The Port will provide $141,450 towards tenant improvements and will
pay $75,444 for broker commission fees.
EXECUTIVE SUMMARY
ASMG is an existing tenant at Pier 69, occupying 19,660 square feet of office and warehouse
space on the first floor of the building. Their lease expires May 31, 2022. Port staff negotiated
a new 5-year lease to continue their occupancy of this Pier 69 premises. The new lease includes
a 5-year option to extend the lease term, as requested by ASMG, Port funded tenant
improvements of $141,450, and Port funded commission fees of $75,444 for the tenant’s
broker.
JUSTIFICATION
Arctic Storm Management Group LLC (ASMG) was formed in October 2001 and is a Seattle-
based company that oversees the fishing and processing of five fishing vessels that operate in
the waters of Alaska and the West Coast. The company harvests, processes, packages and
freezes its catch before distributing its products around the world, specifically North America,
Europe and Asia.
ASMG has a long-term relationship with the Port. They have been a tenant at Pier 69 since June
of 2010 and also moor their vessels at other Port properties. ASMG employs approximately 400
people on an annual basis and currently employs 25 people at Pier 69. Annual revenues for
their entire operations fluctuate depending on the value of the fishing catch. For the year 2022,
COMMISSION AGENDA – Action Item No. 8g Page 2 of 5
Meeting Date: May 10, 2022
Template revised June 27, 2019 (Diversity in Contracting).
ASMG is forecasting annual revenues in excess of $120,000,000 generating annual income in
excess of $20,000,000.
ASMG provides management services to the fishing vessels, Arctic Fjord Inc., Arctic Storm Inc.,
Fjord Seafoods LLC, F/V Neahkahnie LLC and Sea Storm Fisheries Inc. To promote healthy
fisheries that will last for many generations, ASMG practices conservation and sustainability of
the fisheries in which they participate. The company’s vessels catch pollock and whiting in two
fisheries that have been certified sustainable by the Marine Stewardship Council (an
independent international nonprofit organization dedicated to protecting the ocean and
safeguarding seafood supplies for the future by setting sustainable fishing standards). Other
good business practices include their memberships in the At-Sea Processors Association (a
trade association representing US flag catcher/processor vessels of principally Alaska pollock
and west coast Pacific whiting fisheries) and Genuine Alaska Pollock Producers (a nonprofit with
a mission to educate and inform customers and consumers about the fish and the fishery). In
addition to industry focused memberships, the company supports communities at large by
participating in SeaShare, a nonprofit that processes donated frozen seafood and then
distributes to food banks nationwide.
The proposed new ASMG lease at Pier 69 supports both the Century Agenda goal of Economic
Growth via advancing maritime industries through capable management of Port facilities and
also the Economic Development Division’s mission of managing its’ cash flowing properties.
DETAILS
The State of Washington Department of Natural Resources (WADNR) imposes restrictions at
Pier 69 because the pier is located overwater. One of the WADNR restrictions is that non-Port
occupants of the Pier 69 building must be water dependent. Since water dependency is only a
fraction of the entire office market, the terms of the ASMG lease are favorable to ASMG. The
proposed lease terms help the Port to maintain Pier 69 occupancy and avoid the challenging
quest of finding a new water dependent tenant by simply retaining its existing water dependent
tenant.
The proposed lease terms include a starting rent rate of $22.00 per rentable square foot per
year for the office space and $7.50 per rentable square foot per year for the warehouse space.
These rates are below market rate and 10% less than ASMG is currently paying because of the
Port’s occupancy goal. Retaining ASMG and avoiding vacancy and lease up risk at Pier 69 is
staff’s priority. In addition to favorable rates, staff also agreed to the tenant’s request for an
Option to Extend the lease term. Therefore, the proposed lease provides one 5-year Option to
Extend at the then fair market rent rate. The proposed security requirement of $75,004 is the
amount of security that the Port holds for the current lease and is roughly half of what would
typically be required under RE-2 (which would be six months’ rent in the amount of $159,927).
Because of ASMG’s history of timely Pier 69 rent payments and its’ ongoing operations at
Terminal 91, there is a low risk of default. Accordingly, there is no need to increase the amount
of security already held by the Port. The Port will also provide a Tenant Improvement Allowance
COMMISSION AGENDA – Action Item No. 8g Page 3 of 5
Meeting Date: May 10, 2022
Template revised June 27, 2019 (Diversity in Contracting).
of $141,450. ASMG plans to use this allowance primarily to refresh the carpet and paint in their
office, both of which were last refreshed 8 years ago in 2014.
Schedule
The timing detail of the Port funded costs associated with the proposed lease follow:
Activity
Commission approval
Broker Commission – 50% at signing
Broker Commission – 50% at rent
commencement
Tenant Improvements
Cost Breakdown
This Request
Total Project
Tenant Improvement Allowance
$141,450
Tenant Broker Commission
$75,444
Total
$216,894
ALTERNATIVES AND IMPLICATIONS CONSIDERED
The alternatives for this issue are the typical leasing alternatives: 1) Attempt to find a new
tenant, endure an extended period of vacancy and lost rent since water dependency is a tiny
fraction of the office market, achieve market rent rates, forego rents during an abatement
period, or 2) Attempt to find a new tenant, achieve below market rent rates to shorten the
period of vacancy and lost rent, forego rents during an abatement period, or 3) Proceed with
renewing the existing tenant at the negotiated lease terms, maintaining continuous occupancy
and rents and avoiding any rent abatement.
Alternative 1 – Find a new water dependent tenant at market rates.
Cost Implications: $627K the sum of abated rent, Port funded tenant improvements and
brokers fees
Pros:
(1) Achieve highest/market rent rates
(2) Delays Port funded tenant improvement allowance and brokers fees, assuming lease
commencement is a year later than ASMG’s commencement date
Cons:
(1) Finding a water dependent office tenant is quite difficult, so an extended period of
office vacancy (12 months) is highly likely
(2) Lost rental income during the office vacancy period
(3) Additional lost rental income during the new tenant’s rent abatement period
(4) Highest cost alternative
COMMISSION AGENDA – Action Item No. 8g Page 4 of 5
Meeting Date: May 10, 2022
Template revised June 27, 2019 (Diversity in Contracting).
This is not the recommended alternative.
Alternative 2 – Find a new water dependent tenant at below market rates.
Cost Implications: $602K the sum of abated rent, Port funded tenant improvements and
brokers fees
Pros:
(1) Potential to achieve rates higher than ASMG rates albeit lower than market rates
(2) Delays Port funded tenant improvement allowance and brokers fees, assuming lease
commencement is a year later than ASMG’s commencement date
Cons:
(1) Finding a water dependent office tenant is quite difficult, so an extended period of
office vacancy (12 months) is highly likely
(2) Lost rental income during the office vacancy period
(3) Rent abatement needed to entice new tenant
(4) Lower cost alternative
This is not the recommended alternative.
Alternative 3 – Execute a lease with ASMG under the terms outlined in this memo.
Cost Implications: $217K the sum of the Port funded tenant improvements and brokers fees
Pros:
(1) Maintains Pier 69 occupancy
(2) Maintains goodwill with existing Pier 69 tenant who also has operations at Terminal
91
(3) Avoids any rent abatement
(4) Lowest cost alternative
Cons:
(1) Rent rates are below market
(2) Security is less than RE-2 typically requires
This is the recommended alternative.
FINANCIAL IMPLICATIONS
Annual Budget Status and Source of Funds
The current total project estimate is $216,894. This project will be funded by the General Fund.
COMMISSION AGENDA – Action Item No. 8g Page 5 of 5
Meeting Date: May 10, 2022
Template revised June 27, 2019 (Diversity in Contracting).
Financial Analysis and Summary
Project cost for analysis
$216,894
Business Unit (BU)
Portfolio Management
Effect on business performance
(NOI after depreciation)
The project will generate the Total Cash Flow of
$1,237,093 and increase the Net Operating Income by
$1,453,991 for a 60-month lease term.
IRR/NPV (if relevant)
NPV = $1,023,055 with payback period less than 2 years
CPE Impact
N/A
Future Revenues and Expenses (Total cost of ownership)
Modernizing our existing assets readies them for current and future changes, extends their
useful life, and preserves the economic vitality of our operations. If approved, the new ASMG
lease would preserve steady rental income by avoiding an office vacancy and securing the Pier
69 premises for five years.
ATTACHMENTS TO THIS REQUEST
(1) ASMG Lease Agreement (excluding Exhibits) with tenant signature
(2) Presentation slides
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
February 23, 2010 – The Commission approved a new lease with ASMG that provided a
term of 5 years and 3 months, one five-year option to extend and Port funded tenant
improvements of $228K.
July 3, 2014 – The Commission approved ASMG’s First Amendment to extend the term from
5 years and 3 months to 12 years and 3 months, Port funded tenant improvements of
$114K and Port funded tenant broker fees of $66K.